More from Elizabeth Warren

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Warren: Banks Are Sitting on Bad Assets 

Thursday, August 13, 2009 5:00 PM
 
 
Elizabeth Warren, head of the Congressional Oversight Committee, says most of the toxic assets former treasury Secretary Henry Paulson convinced Congress to give him $700 billion to buy are still on the banks’ books.

“The first $350 billion went directly into the banks for stock and warrants,” Warren told MSNBC. “This was the ‘don’t ask, don’t tell money.’”

“We didn’t ask how they were going to spend it and they didn’t tell us.”

Warren says that the Public Private Investment Program (PPIP), which was supposed to buy toxic assets from banks, is getting ready to launch in revised form — buying securitized assets only.

However, since the majority of securitized assets are held by big banks, mid-sized and small banks will still be largely out in the cold.

The recent tweaks in mark-to-market accounting rules that allow banks to carry toxic assets on their book at higher than market values have made banks want to hold on to them, Warren says.

That’s because selling those assets at actual values would mean banks have to recognize their losses, which would put some banks out of business.

The final piece of bad bank news: Warren says default rates on the commercial mortgages that are coming due 2010-2012 may be as high as 60 percent.

The rate at which commercial property owners are defaulting on loans is climbing at an unparalleled pace, The Associated Press reports, leaving many banks stuck with shopping malls, hotels and offices buildings they've repossessed and can't sell.

"The bottom line: defaults are exploding," says Deutsche Bank analyst Richard Parkus.

"It's terrible. It's going to be worse than in the early '90s."